11/29/2005 @ 6:00AM

It Takes Many Arrows To Kill An Elephant

Companies don’t downsize themselves to success. Downsizing is an admission that things are bad and that they aren’t going to be what they used to be. What’s happening now with
General Motors
and
Ford Motor
may be necessary, but it doesn’t guarantee turnarounds.

Detroit has been downsizing for decades. I’ve been following this industry for a long time, and I can recite the names of closed plants from memory: Mahwah, N.J., (Ford); Tarrytown, N.Y., (GM minivans); Dodge Main in Hamtramck, Mich.; Detroit Fleetwood (Cadillac); Edison, N.J., (Ford pickups); Quebec, Canada (Chevy Camaro); and many more. Heck, I can go back to the shutdown of Detroit Hudson and South Bend Studebaker. Now we can add Oklahoma City, Doraville, Ga., Lansing Mich., with Saturn assembly and the Ford plants still to come.

You see, the art of running an auto business is not about killing cars or shutting plants or demanding that partmakers chop prices. Anyone can do that. The art is in designing and producing vehicles that people really want or need–vehicles that consumers “gotta have,” and that they are willing to pay a good price to get.

Ironically, the truck boom of the prior years gave General Motors
a chance to recoup. Its pickups and large sport utility vehicles were hugely popular and enormously profitable. But the management squandered the opportunity, failing to turn around the sinking car lines while the foreigners were catching up in trucks and SUVs.

GM and Ford Motor
keep losing customers and money, and someday they might run out of both. Note that I’ve excluded Chrysler from this conversation, because it is now part of Germany’s
DaimlerChrysler
and is showing some spunk.

If downsizing doesn’t quickly show results, it may lead to management changes, because it’s sign of failure. As such, I would give GM’s current management no more than a year to produce.

Actually, GM’s current vehicles are much improved. In fact, I would even say that they are competitive. I’ve driven the Pontiac G6 Coupe, the Chevy Impala sedan and HHR wagon, the Pontiac Solstice roadster and the big Cadillac DTS sedan. I put in more than 1,500 miles in those five vehicles, and they are quite good.

The trouble is that none of GM’s new vehicles are blockbusters, though the Chevy HHR comes close. The Solstice turns heads, but it’s in a tiny niche, and, sadly, GM can’t build them in any quantity.

Bringing in Robert A. Lutz, the former Chrysler president and now vice chairman of GM, had a tremendous effect. But the fear of GM Chairman and Chief Executive Rick Wagoner and Lutz is that all of GM’s current problems could overwhelm their efforts to upgrade future products. It doesn’t help to have the media talking bankruptcy, or that there is the possibility of a long strike at
Delphi
, GM’s biggest parts supplier. Wagoner and Lutz may also have to contend with an economic and industry slowdown next year and a United Auto Workers union that seemingly would rather sink the company than make the necessary sacrifices.

I have never been a big fan of government intervention in business, but I think that there are things that the government could do in these dire times for Detroit.

For starters, we need sanity in foreign exchange rates. It is time to stop allowing deliberate national policies of weak currency to destroy our industry. Japan, Korea and China play this game. Alas, the Pentagon and the State Department, which control U.S. policy, don’t give a hang about some laidoff metal bender in the Midwest. They have bigger fish to fry.

Health care costs are also strangling the domestic auto companies. I wouldn’t nationalize medicine to protect the generous heath care plans of autoworkers. But why can’t Washington create a single health care plan for the entire industry with a fixed charge for every vehicle sold here? The foreign manufacturers are sharing the profits; let them also share the burden. Remember, the big foreign manufacturers are building millions of cars in their new U.S. plants–facilities that state governments have subsidized with hundreds of millions of dollars in tax breaks and other benefits. That’s not fair to the home team.

Again, it is time for the United Auto Workers to do their share to save the domestic companies–before it is too late. The union leaders need to explain to their members that the ship is sinking and that the only hope is to retreat on wages and benefits. Maybe it will happen. If not, we might have a strike to the death, like the UAW strike that ruined International Harvester in the 1980s. GM and Ford need to go on the offensive and tell workers, governors, Congress and the public how dangerous the situation is.

GM’s product program is moving in the right direction. Ford’s is stumbling. But Ford’s problems are easier to solve, because the company is smaller and has more of a tradition of its leaders being people who understand the business. So I say Ford is better off.

Of course, all of Detroit’s problems–the invasion of the foreign companies, the legacy costs of pensions and heath care, the wages that dwarf the foreign competition, the tendency of the media and public to vilify big companies–doesn’t excuse management for its failures. In particular, I say that the financial men who have run GM for decades did not understand the car market, they didn’t respect the vehicles or the customers, and they were interested only in maintaining their power. They worried about the cost of everything but understood the value of nothing.

Is Detroit finished? Carlos Ghosn at
Nissan
and Dieter Zetsche and Wolfgang Bernhard at Chrysler proved that big turnarounds are possible in this industry.

GM and Ford are elephants, and it takes many arrows to kill an elephant.